currencyThere’s been a lot of discussion of how Greece and other badly indebted countries could leave the euro and what the consequences would be.
An alternative that’s sometimes mentioned is for Germany and perhaps closely aligned economies such as the Netherlands to leave instead.
What would the economic impact be if they did that?
As well as the longer-term economic impact, I’m interested in how the operational aspects would work out - would debts and savings in those economies be redenominated?
The impact would be an appreciation of the new German currency, and probably a depreciation of the Euro, because of the trade imbalance between Germany and the rest of Europe. This would worsen Germans competetiveness, leading to a decline in current account surplus.
Any answer to this is pure speculation. If Germany were to do this I would expect it would be either:
A) In response to some as yet unforeseen development that would require immediate action. This would likely destabilize all of Europe though any event that would trigger such abrupt action would likely do that anyway. This every man for himself type of action will not make any friends but may position Germany for the quickest recovery in the event of imminent economic meltdown.
B) Part of a carefully planned, announced, and choreographed process that would have little short term impact. Germany is not likely to take any action that will be detrimental. The end results of this method would not be evident until the plan is announced but I would expect it to be minimal at least at execution. What would happen after is anyone’s guess.
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